As we enter the new year it’s a good opportunity to reassess some of the themes we are positioned for across our Australian funds – the Milford Dynamic Fund and the Milford Trans-Tasman Fund. While thematic investing forms only a portion of our full investment case, it’s usually a good place to identify potential winners before detailed work is carried out on how to capitalise on these themes and ensure they’re not already ‘in the price’.
Australia and New Zealand’s reputation for premium produce
The rise of upper-middle-class and affluent households in China is offering opportunities to specialised Australasian food and beverage manufactures. A new generation of freer-spending and sophisticated consumers are demanding premium products at a premium price. Milford holds positions in dairy and infant formula company A2 milk, allergen-free specialist and UHT dairy company Freedom Foods Group, and vitamin and supplement health food company Blackmores.
Ambitious infrastructure spending program across Australia’s East Coast
The Australian Federal Government infrastructure pipeline is currently valued at over $75bn over the next 10 years[1]. The NSW Government alone will invest $73bn[2] in critical infrastructure over the next four years. Milford holds positions in fast growing waste management and recycling company Bingo Industries and Infrastructure and Environmental Engineering consultancy Cardno.
Alternative consumer financing gaining traction
Growth rates in credit card application data have been trending down for a number of years[3]. The millennial generation appear to be shifting away from traditional interest charging credit cards, in favour of store cards with loyalty perks or alternative financing options. Milford holds positions in Afterpay Touch and CreditCorp for exposure to this thematic. Afterpay Touch is a player in the rapidly expanding ‘buy now, receive now, pay later’ space. The product assists consumers smooth payments with four fortnightly payments, while also increasing basket size and conversion for participating retailers. CreditCorp’s Wallet Wizard product provides unsecured personal loans between $2-5k to the credit impaired segment.
Demand for online education, resources and the proliferation of English language
Global education is booming and the demand of high quality education and resources is increasing rapidly. The migration from traditional printed textbooks and workbooks to online technology-based education resources is an ongoing trend . Milford holds positions in Mathletics creator 3P Learning and the leading English language proficiency test co-owner IDP Education.
Leverage to the firming insurance premium cycle
Commercial insurance premiums have been subdued to negative over the past four years. This was largely driven by excess insurer capacity and a lack of loss events which typically drives SME uptake. In the last few months of 2017, insurance rates appear to be firming with feedback indicating discounts have reduced and renewals are experiencing increases of between 10-30%. Milford holds positions in Australasian insurance brokers AUB Group and competitor Steadfast. Commission structures are highly leveraged to a firming in SME insurance pricing, with limited exposure to any loss events.